2023 has been a good year for developing the law of Subchapter V through court rulings and opinions. Here are some of the highs and lows of that development.

Working as Intended

If 2023 shows us anything, it’s this: Subchapter V is working as intended.

Subchapter V has developed into the efficient and effective tool for business reorganization it was intended to be. That’s true, whether the reorganization is in the form of continued operations or liquidation. Such a tool did not exist before Subchapter V.

In 2022, the U.S. Supreme Court issues its unanimous Siegel v. Fitzgerald opinion. The question in that opinion is:

Here’s my biggest bankruptcy shocker from 2023:

• the Third Circuit’s rationale for dismissing Johnson & Johnson’s bankruptcy.

I’ll try to explain.

Appalled

I’m still appalled by the lack of concern, from the Third Circuit Court of Appeals in its dismissal opinion, over these disparities it describes in results for similarly situated claimants:

“Bankruptcy provides a valuable and desirable venue for the resolution of [mass tort] disputes” by:

The history of bankruptcy in these United States teaches this:

• bankruptcy laws can provide an efficient and effective solution for a great variety of financial problems.

But bankruptcy laws, in these United States, face significant problems, and their effectiveness is being diminished.

First Problem

Bankruptcy has a fundamental problem: nobody likes it.

Everyone recognizes that bankruptcy laws are a necessity in our market economy. And bankruptcy laws are even founded upon a provision of the U.S. Constitution:

There are many reasons to mandate mediation in certain circumstances.

• One is to improve the quality of justice.
• Another is to manage an expanding docket and burgeoning caseload.
• A third is to create a mediation culture where none currently exists.

There are two ways to mandate mediation:

Every now and then, a bankruptcy ruling elicits an “Oh, no!” response from just about everyone.

And then, subsequent case law starts rejecting and/or chipping-away at that “On, no!” ruling.

We have such an “Oh, no!” situation going on right now on a Subchapter V debt-limit issue.

New Rejecting/Chipping-Away Opinion

I’m reading a U.S. circuit court’s recent bankruptcy opinion that cites Stern v. Marshall, 564 U.S. 462 (2011). I’m startled by that and blurt out (to myself), “Who cites Stern anymore?!” and “Is Stern still a thing?!” and “I thought Stern has been narrowed to nearly nothing?!”

What creditor would ever want to be an involuntary bankruptcy petitioner under these statements of facts and law:

Oral arguments at the U.S. Supreme Court in Harrington v. Purdue Pharma L.P. happened on December 4, 2023. Here is a link to the official transcript of such arguments.

My Impression

I’ve read that transcript—and still don’t know what the Court is going to do.

But based on the comments/questions of the justices (which are summarized and compiled below), I do have one impression: